Q3 2023 Argo Blockchain PLC Earnings Call

Speaker 1: we generated 10.4 million of revenue for the quarter, a decrease of 17% from Q2, resulting from economic curtailment.

<unk> revenue for the quarter, a decrease of 17% from Q2, resulting from economic curtailment.

Speaker 1: However, the power credits that we generated from the curtailment reduced our net power costs significantly and increased our mining profit to $6.1 million.

However, the powered credits that we generated from the curtailment reduced our net power costs significantly and increased our mining profit to $6 1 million.

Speaker 1: Our mining margin percentage was 58% for Q3, an increase over the 36% mining margin we achieved in Q2.

Our mining margin percentage was 58% for Q3, an increase over the 36% mining margin we achieved in Q2.

Speaker 1: During the quarter, we recorded a one-time non-cash provision of $1.2 million related to prior year sales tax expected to be received from the Canadian Tax Authority.

During the quarter, we recorded a onetime noncash provision of $1 $2 million related to prior year sales tax expected to be received from the Canadian tax authorities.

Speaker 1: This is the majority of the 1.5M of non-recurring expenses that we added back to adjusted EBITDA.

This is the majority of the $1 5 million of nonrecurring expenses that we added back to adjusted EBITDA.

Speaker 1: We generated an adjusted EBITDA of $3.1 million, which is a strong improvement from the second quarter.

We generated adjusted EBITDA of $3 1 million, which is a strong improvement from the second quarter.

Speaker 1: For the nine month period ended September 30, we generated 5.3 million of adjusted EBITDA. At the end of the quarter we had 8 million EBITDA users.

For the nine months period ended September 30, we generated $5 3 million of adjusted EBITDA.

At the end of the quarter, we had $8 million of cash on hand.

Speaker 1: As Safe mentioned, we've seen a significant increase in hash price in October and so far into November . With our total hash rate capacity, every $10 increase in hash price results in approximately $2.5 million of incremental revenue per quarter, which dramatically improves our profitability and cash flow.

As safe mentioned, we've seen a significant increase in harsh price in October and so far into November.

With our total hash rate capacity every $10 increase in harsh price results in approximately $2 $5 million of incremental revenue per quarter, which dramatically improves our profitability and cash flow.

Speaker 1: This slide shows our cash flow from the end of June to the end of September .

This slide shows our cash flow from the end of June to the end of September.

Speaker 1: Our cash flow from operations, excluding working capital changes, was 1.5 million.

Our cash flow from operations, excluding working capital changes was $1 5 million.

Speaker 1: As Faith mentioned, we raised $7.5 million in gross proceeds from the sale of equity, and we paid down $7.8 million in principal and interest on our debt.

That's safe mentioned, we raised $7 5 million in gross proceeds from the sale of equity and.

And we paid down $7 8 million in principal and interest on our debt.

Speaker 1: At the end of the quarter, we had a net power receivable of $2.8 million.

At the end of the quarter, we had a net power receivable of $2 $8 million.

Speaker 1: Adding that to the $8 million closing cash balance would have given us $10.8 million at September 30, compared to $9.1 million at June 30.

Adding that to the $8 million closing cash balance would've given us $10 8 million at September 30th compared to $9 1 million at June 30th.

Speaker 1: We are pleased that we continue to improve our operating cash flow with our focus on operations and cost reduction.

We are pleased that we continued to improve our operating cash flow with our focus on operations and cost reduction.

Speaker 1: As we've shown in prior quarters, we continue to scrutinize all of our non-mining operating expenses and find ways to reduce costs.

As we've shown in prior quarters, we continue to scrutinize all of our non mining operating expenses and find ways to reduce costs.

Speaker 1: In Q3, we reduced our recurring non-mining operating expenses by 11% as compared to Q2.

In Q3, we reduced our recurring non mining operating expenses by 11% as compared to Q2.

Speaker 1: Since the second half of 2022, we've cut our non-mining operating expenses by more than 70%.

Since the second half of 2022, we've cut our non mining operating expenses by more than 70%.

Speaker 1: This cost reduction is important because it improves our overall margin and cash flow generation.

This cost reduction is important because it improves our overall margin and cash flow generation.

Speaker 1: Again, one of our key priorities is to reduce debt, which is critically important as we approach the halving.

Again, one of our key priorities is to reduce debt, which is critically important as we approach to having.

Speaker 1: In Q3, we reduced our debt owed to Galaxy by $5 million to $27 million, and we ended the quarter with $70 million in debt.

In Q3, we reduced our debt owed to galaxy by $5 million to $27 million and we ended the quarter with $70 million in debt.

Speaker 1: We are also in advanced discussions to sell certain non core assets, which is an important part of our deleveraging strategy. We anticipate announcing further details by the end of the year.

We are also in advanced discussions to sell certain non core assets, which is an important part of our deleveraging strategy.

We anticipate announcing further details by the end of the year.

With that I'll pass it back to safe.

Speaker 2: Thanks, Jim. In Quebec, we've now completed the deployment of our EPIC block miners, numbering around 2700. This represents around 300 petahash of additional capacity, bringing our total hashrate capacity to 2.8 exahash per second.

Thanks, Jim.

In Quebec, we've now completed the deployment of our epic block miners numbering around 2700 Jewish.

This represents around 300 potash or additional capacity, bringing our total heartbreak capacity to two eight <unk> per second.

Speaker 2: seeing really good performance from these machines and we're excited to have added them to our fleet just in time to take advantage of the recent run-up.

Seeing really good performance from these machines and we're excited to have added them terribly just in time to take advantage of that machine run up and harsh price.

Speaker 2: So all in all, and in summary, it was a great quarter for Argo. We increased our mining margin, our adjusted EBITDA, and our total hash rate capacity, all the while continuing to cut costs.

So all in all and in summary, it was a great quarter for Argo, we increased our mining margin our adjusted EBITDA in our total hatchery capacity, all the while continuing to cut costs and reduce debt.

Speaker 2: I'm also really optimistic about the trends that we've been seeing in the market with the increases in both Bitcoin and hash.

I'm also really optimistic about the trends that we've been seeing in the market with the increases in both bitcoin at half price.

Speaker 2: Argo is well positioned to capitalize on these trends as we move forward into 2021.

Our goes well positioned to capitalize on these trends as we move forward into 2024 with that back to you Paul and Tom for any questions. Thanks, Roddie Fantastic say, thank you very much indeed.

Speaker 3: With that back to you, Paul and Tom for any questions. Thanks everybody. Fantastic. So thank you very much indeed.

Speaker 4: for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q&A tab situated in the right hand corner of the screen. But just while the team take a few moments to review those questions submitted today, I'd like to remind you that recording the presentation along with the copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we've had a number of questions submitted both throughout today's presentation, pre-submitted, and thank you to all the investors for submitting those. Tom, if I may just hand back to you just to read out those questions where appropriate to do so and I'll pick up from you.

Jim Thank you for the presentation, ladies and gentlemen, please continue to submit your questions using the Q&A tab situated in the right hand corner of the screen, but just it seems like a few months to review those questions submitted today I'd like to remind you that recording the presentation along with a copy of the slides in the published Q&A can be accessed via our investor dashboard. As you can see we've had a number of questions asked in many places throughout today's presentation.

<unk> pre submitted it and thank you to the investors for submitting those tell me if I might just hand back to you just to read out those questions where appropriate to do so and I'll pick up from here.

Speaker 5: Great. Thanks, Paul. Our first question comes from Bill Papenistasio at Stiefel.

Great. Thanks, Paul Our first question comes from Bill pop into Stasio at Stifel.

Speaker 5: Hash price has been rebounding lately with the recent appreciation in the Bitcoin spot price. Can you speak to the improvements in Q4-23 and elaborate on how it is impacting cash flow?

As price has been rebounding lately with the recent appreciation in the bitcoin spot price can you speak to the improvement in Q4, 'twenty three and elaborate on how it is impacting cash flow.

Speaker 2: Yeah, sure, I'll take that. Thanks, Tom. Thanks, Bill. Yeah, the hash price is something that obviously we're paying very close attention to. It's come down a bit from its most recent peak at $90, but it's still significantly higher than the Q3 average of $67.

Yeah sure I'll take that thanks, Tom Thanks, Bill Yeah. The harsh price is something that obviously, we're paying very close attention to its come down a bit from it from its most recent peak at $90, but it is still significantly higher than the Q3 average of 67. So I mentioned this during our remarks, but really for every $10 increase in <unk>.

Speaker 2: So I mentioned this during our remarks, but really for every $10 increase in hash price based on our total hash rate capacity of 2.8x hash.

<unk> priced based on our total Hush Hush rate capacity of 2.8 ex ash.

Speaker 2: We're generating an additional two and a half million dollars per quarter. So, um, we, we did just have a difficulty increase of around three and a half percent, so that tempers a little bit with that, with the hash rate, but it's actually

Generating an additional $2 $5 million per quarter. So.

We did just have difficulty increase of around three 5%, so that tempers, a little bit with that with the highest rate that it's actually smaller than the difficulty adjustment we were actually expecting here you go.

Speaker 2: smaller than the difficulty adjustment we were actually expecting a year ago.

A week ago, sorry, not a year ago.

Speaker 5: Our next question comes from Kevin Deedy at HC Wainwright, and this is for Jim. Can you remind me how you reduced the debt by $5 million? Did that come from operating cash flow?

Our next question comes from Kevin <unk> at H C. Wainwright and this is for Jim.

Can you remind me how you reduce the debt by $5 million did that come from operating cash flow.

Speaker 1: Yeah, thanks, Kevin. In July , you'll recall we were raised around 7 million of net proceeds and immediately 25% of that went to reduce the.

Yes, thanks, Kevin.

In July Youll recall, we raised around $7 million of net proceeds and immediately 25% of that went to reduce the.

Speaker 1: reduced the debt, plus we had another three amortization payments of roughly $1.1 million each, and that came out of our operating cash flow and cash on hand. So that's the three plus the $1.7 is 4.8 or approximately $5 million.

Reduce the debt plus we had another three three amortization payments of roughly $1 1 million each and that came out of our operating cash flow and cash on hand, so that the three plus.

One seven is 4.8 or.

Approximately $5 million there. Thanks.

Speaker 5: Thanks, Jim. Our next question comes from Chase White at Compass Point.

Thanks, Jim Our next question comes from Chase White at Compass point.

Speaker 5: State, now that all your machines are installed and operations are going well, do you have any visibility into future growth options? Is there a time frame for making any decisions?

Now that all of your machines are installed and operations are going well do you have any visibility into future growth options is there a timeframe for making any decisions.

Speaker 2: Yeah, absolutely. Thanks Chase. Look, we're continuing our discussions with some key strategic partners and hope to share some updates with you on our next call. Right now, we're in parallel to that. We're focused on reducing our debt and cost structure. So, it's really going to allow us to be opportunistic when...

Yeah, absolutely thanks Chase.

We're continuing our discussions with some key strategic partners and hope to share some updates with you on our next call right now we're in.

And in parallel to that we're focused on reducing our debt and cost structure. So it's really going to allow us to be opportunistic when.

Speaker 2: when we're thinking about the halving. So I think we're gonna see a lot of opportunities in the market as a lot of unprofitable miners come offline and we're basically just gonna be ready to take advantage of that, be it from an operational perspective, financial perspective or strategic partner.

When we're thinking about the having so I think we're going to see a lot of opportunities in the market as a lot of unprofitable miners come offline and we're basically just going to be ready to take advantage of that.

Be it from an operational perspective financial perspective, our strategic partnerships.

Yes.

Speaker 5: Our next question was submitted in the chat. How were the non mining expenses reduced by 11% and is that reduction stable going forward.

Our next question was submitted in the chat how were the non mining expenses reduced by 11% and as that reduction stable going forward.

Speaker 1: Yeah, I can take that. As I mentioned earlier, we were able to reduce our recurring non-mining OPEX by around 11 percent from the prior quarter. This was primarily driven by lower insurance costs, lower professional fees, and lower salaries as a result of reduced headcount. And so, yeah, we believe this is going to be an ongoing reduction going forward.

Yes, I can take that as I mentioned earlier, we were able to reduce our recurring non mining opex by around 11% from the prior quarter. This.

This was primarily driven by lower insurance costs, lower professional fees and lower salaries as a result of risks reduce head count and so yes. We believe this is a as is.

Going to be an ongoing reduction going forward.

Thank you.

Speaker 5: Thanks. Our next question for SAFE from Kevin Deedy again from H.C. Wainwright. Can you speak a little bit about how the EPIC block miner machines are performing in Quebec?

Thanks, Our next question for Safe and Kevin Didi again from H C. Wainwright.

Can you speak a little bit about how the epic block my I'm machines are performing in Quebec.

Speaker 2: Hey, yeah, thanks, Kevin. Performance is just better than expected. We're seeing really good results, especially when we overclock them to about 130 terahash per unit. Currently, they're averaging about 114 terahash.

Hey, Yeah. Thanks, Kevin our performance is just better than expected, we're seeing really good results, especially when we overclock them to about 100.

<unk> per unit.

Currently there are averaging about 114th Taro has to the fleet.

Speaker 2: So they're representing about 11% of our overall hashrate capacity right now.

So, they're they're representing about 11% of our overall hatchery capacity right now.

Speaker 2: Um, efficiencies on par with the S 19s J pros, uh, they're capable of achieving good efficiency when we downclock them. So, so downclocking them brings them to about 27. Um, jewels per terra hash of time is outstanding. Thanks to Quebec's reliable power. Um, we're entering our curtailment season in Quebec, so minimal downtime still. Despite that is to be expected.

Efficiencies on par with the 19th J pros, they're capable of achieving good efficiency when we down caught them. So so down caulking them bring them to about 27.

Joseph <unk>.

Time is outstanding thanks to cut backs reliable power.

We're entering our curtailment season in Quebec, So minimal died downtime still despite that as to be expected.

Speaker 2: From our WISe, it's stable, it's performing as expected. Epic has been providing us with all the right updates, and then the installation process was amazing thanks to our techs. I got kudos to our operations team here. I think the rigs were deployed within 48 hours once they got to the data centers. So all in all, Kevin, I would say that they're performing better than the next.

From a why is it stable, it's performing as expected epic has been providing us with all the rate updates and Andy installation process was amazing thanks to attacks I got up now kudos to our.

Operations team here I think the rigs were deployed within 48 hours once once they got to the data centers. So all in all Kevin I would say that there are performing.

Better than than expected.

Okay.

Speaker 5: Thanks Dave. Our next question for Jim. This comes from Jason F. in the chat. Can you comment on Argo's capital structure and how you plan to continue addressing debt?

Thanks, Dave Our next question for Jim This comes from Jason F in the chat.

Can you comment on Argos capital structure, and how you plan to continue addressing that.

Speaker 1: Yeah, thanks, Jason. Yeah, we continue to focus on paying down our debt. We've made significant progress in paying down our Galaxy debt, especially, and we are continuing to look for other ways to strengthen the balance sheet.

Yeah. Thanks, Jason Yeah, we continue to focus on paying down our debt we've made significant progress in paying down our galaxy debt.

Especially and we're continuing to look for other ways to strengthen the balance sheet.

Speaker 1: Some of the avenues we're exploring include non-core asset sales and potential refinancing of our existing debt.

Some of the avenues, we are exploring include noncore asset sales and potential refinance refinancing of our existing debt.

Speaker 1: We have seen with the improvement in Bitcoin mining economics over the past month, more appetite for debt and equity financing from the capital markets. So we're having lots of conversations on that front as well. Thank you.

We have seen with the improvement in bitcoin mining economics over the past month.

More appetite for debt and equity financing from the capital markets. So we're having lots of conversations on that front as well.

Thank you.

Speaker 5: Another question that we've received several times in the chat.

Another question that we've received several times in the chat.

Speaker 5: How do you plan on, or do you plan on expanding the mining capabilities in Canada? And do we plan on renewing our contract with Galaxy and continue to mine at Helios once the two-year contract expires?

How do you plan or do you plan on expanding the mining capabilities in Canada.

And do we plan on renewing our contract with Galaxy and continuing to my Helios once the two year contract expires.

Speaker 2: Yeah, I'll take that. So good question. I think having our history or Argo's history beginning in Canada, I mean, we know it, we understand it. We love the reliability of the power here. But we're also nimble, we're flexible and

Yeah I'll take that so good question I think having our history, our argo's history, beginning in Canada, I mean, we know it we understand it we love the reliability of the power here.

But we're also a nimble flexible and most importantly, where mobile so which really makes us geographically agnostic when we're thinking about growth and opportunity, we're really looking at anywhere from hydropower.

Speaker 2: importantly, we're mobile, which really makes us geographically agnostic. When we're thinking about growth and opportunity, we're really looking at anywhere from hydropower in Quebec or Texas or the deserts of Oman. So we're really open and having these discussions accordingly and remain opportunistic and again geographically agnostic.

Quebec, or Texas, or the deserts of Oman.

So we're really you know open and having these discussions accordingly, and remain opportunistic and again geographically agnostic.

Speaker 5: Thanks, Seth. Another question that we've received several times, including from Satvir B., Shigar S., and Satish P. When should we expect to hear more about the discussions mentioned on the asset sales?

Thanks, Dave.

Another question that we received.

Several times, including from.

<unk> P M.

When should we expect to hear more about.

The discussions mentioned on the asset sales.

Speaker 2: Yeah, thanks. This is Satvir Shigar and everybody else. I mean, I appreciate everybody's patience on this. As Jim mentioned, we're still in advanced discussions with partners. We're genuinely making good progress here and we anticipate sharing something, hopefully by the end of the year.

Yeah. Thanks for your cigar and everybody else I mean, I appreciate everybody's patience on this as Jim mentioned, we're still in advanced discussions with partners.

Genuinely making good progress here and we anticipate sharing something hopefully by the end of the year.

Yeah.

Speaker 5: Thanks. Our next question comes from Bill Papanastasiou. What are your network hash rate forecast posts having and how will ARBK remain competitive?

Thanks, Our next question comes from Bill <unk>.

What are your network hash rate forecast post, having and how how well our BK remain competitive.

Speaker 2: Yeah, good question, Bill. Thanks. I mean, we're expecting to see a lot of hashrate come offline as miners with older generation machines and an older fleet.

Yeah. Good question Bill Thanks.

Expecting to see a lot of hatch rate come offline as miners with older generation machines in an older fleet.

Speaker 2: You know, mining as mining gets more expensive and power contracts are good power contracts is just more difficult to find and to mine profitably. So as we've seen in past halving cycles, I think the difficulty adjustment will fluctuate back and forth as the network flushes out the miners that are just right on margin or below.

Mining as mining gets more expensive in power contracts are good power contracts is it's just more difficult to find to mine profitably. So.

As we've seen in past having cycles I think the difficulty adjustment will fluctuate back and forth as the network flushes out the miners that are just right on margin or below.

Speaker 2: Um, and I'm going to say this again. I mean, really our focus is what we can control. And it's why in my initial comments I say that we're so focused on efficiency and cost.

And I'm going to say this again I mean really our focus is what we can control and that's why in my initial comments I say that we're so focused on efficiency and costs. So you know relative to the entire network, we have an efficient fleet.

Speaker 2: So relative to the entire network, we have an efficient fleet. We're competitive from a power and hosting cost perspective, year-to-date. Our power hosting has been all in at around $0.045 per kilowatt hour. So we're looking at, again, efficiency and operations, and we're also looking at potential hedging opportunities using derivatives, which I think everyone in this space should be looking into.

We're competitive from a power and hosting cost perspective year to date.

You know are a powerhouse thing has been all in there at around four five cents per kilowatt hour. So we're looking at.

We're looking at again efficiency in operations and we're also looking at potential hedging opportunities using derivatives, which I think everyone. In this pace should be looking into.

Speaker 2: And so I think those factors, the ones at least that are in our control, should enable us to remain competitive and continue to mine profitably after the halving. So thanks for the question, Bill. It's a good one.

And so I think those factors the ones at least that are in our control should enable us to remain competitive and continue to mine profitably.

After the having so thanks for the question Bill.

It's a good one.

We're conscious of of all of that.

Speaker 5: Thanks, and then this will be our last question from Kevin Didi at HC Wainwright. Can you clarify when you reach 2.8 exit hash, did that come from the block miner machines?

Thanks, and then this will be our last question from Kevin Dede with H C. Wainwright safety clarify when you reach 2.2 dollars eight extra cash did that come from the block minor machines.

Speaker 2: Yeah, so thanks. Thanks, Kev. In our September monthly operational update, we announced that we had completed the deployment of our EPIC blockchain machines, and they represent around 300 petahash of hashrate capacity. So that essentially enabled us to grow from 2.5 to 2.8 exahash. So the block miners have been online and hashing since the end of September .

Yeah. So thanks.

Thanks.

Our September monthly operational update we announced that we had completed the deployment of our epic blockchain machine, so and they represent around 300 pet a hash of hatch rate capacity.

So that essentially enables us to grow from two and a half to 2.8 extra harsh so the the block miners have been online and hashing since the end of September.

Great. Thank you Paul.

Speaker 4: Fantastic. Thank you very much indeed for addressing those questions. And of course, the company review all questions submitted today and we published responses on the investor meet company platform. Before redirecting investors to provide you with their feedback, it's particularly important to the company. So if I could just ask you just for a few closing comments.

Fantastic. Thank you very much indeed for addressing those questions and of course, the company review questions submitted them and publish responses on the invest to make company platform full redirecting investments to provide you with their feedback and is particularly important to the company.

If I could just ask you just for a few closing comments please.

Speaker 2: Yes, thank you, Paul. I just want to thank everyone around the world for tuning in to our earnings call today. Again, it was a great quarter for Argo with improvements in mining margin, adjusted EBITDA and hash rates. So we really continue to focus on deleveraging and reducing costs and looking forward to our next call to give everybody some more.

Yes. Thank you Paul I just want to thank everyone.

The world for tuning into our earnings call today again, it was a great quarter for Argo with improvements in mining margin adjusted EBITDA and hatch rates. So we really continue to focus on deleveraging and reducing costs and looking forward to our next call to give everybody. Some more updates. So thank you everybody be well. Thank you.

Speaker 2: So thank you everybody, be well. Thank you Paul, thank you Tom, thank you Jim. Thanks.

Paul Thank you Tom Thank you Jim Thanks team.

Speaker 4: Thank you all for updating Investor today. Can I please ask the investors not to close this session as you'll be automatically redirected to provide your feedback. Nor the team can better understand your views and expectations.

You all were up 19 invested today can I. Please ask the investors not so close the session is you'll be automatically redirect you to provide your feedback.

<unk> can better understand your views and expectations just wanted to take a few minutes to complete and as I said greatly valued by the company on behalf of the management team is all about champion see we'd like to thank you for attending today's presentation and good afternoon to you all.

Speaker 4: and it is greatly valued by the company. On behalf of the managing team of Argo Blockchain PLC we'd like to thank you for attending today's presentation and good afternoon.